ONTARIO – Evidence – Privilege – Remedies for Breach – A breach of privilege creates a serious risk to the integrity of the administration of justice. To prevent this, the Courts must act swiftly and decisively, which may include granting a stay of proceeding, striking evidence, or ordering that a matter proceed before a judge as an undefended matter.

2177546 Ontario Inc. v 2177545 Ontario Inc.
2023 ONCA 693 (CanLII)
Ontario Court of Appeal (Harvison Young, Thorburn and Favreau J. JA)

This appeal is about the appropriate remedy for accessing an opposing party’s privileged information.

Background

Paul Halyk (“Halyk”) was the principal of 2177545 Ontario Inc. (“545”). He and his former brother-in-law and business partner Paul Labris (“Labris”), the principal of 2177546 (“546”), were involved in numerous real property ventures.

In 2021, their relationship broke down. At the time, the parties owned, as tenants in common, vacant land in Simcoe, ON (“Property”). The parties had a pending application at the Committee of Adjustments to sever the Property into two equal parcels. Halyk and Labris had jointly signed the Partition Application. (paras. 20 –22 )

Despite Halyk’s signature on the Partition Application being witnessed, Halyk claimed it was a forgery. In April 2021, the Committee approved the Partition Application and issued its consent to sever the Property. (paras. 23–24)

Halyk initially appealed the Consent to Sever on the basis that he did not sign the application. He then later withdrew his appeal. Halyk refused to sign the documents to convey the Property into two parcels. (para.25)

The Respondent 546 brought an application under the Partition Act to sever the Property.

The ONSC Decision

The application judge found that the appellant’s principal Halyk deliberately accessed the respondent’s privileged emails. The application judge struck the appellant’s Notice of Appearance in the Partition Application, barred the appellant from filing evidence and ordered the Partition Application proceed undefended, subject to leave being granted by the judge hearing the matter. (para. 3) Halyk did not challenge the judge’s finding that he had accessed privileged information, although he disputed that he did so deliberately.

Issues the ONCA Considered

The appellant appealed on the basis that the application judge erred by:

1. Imposing a remedy that was neither pleaded nor proven by the respondent; and
2. Failing to consider a lesser remedy such as appointing another director of the appellant to instruct counsel or appointing a litigation guardian. (para. 5)

The appellant claimed that the application judge ignored the fact that the respondent had the onus to demonstrate that striking the Notice of Application was the only available remedy. Halyk relied upon Continental Currency Exchange Canada Inc. v. Sprott, 2023 ONCA 61, at para. 42, leave to appeal refused, [2023] S.C.C.A. No. 142. He further claimed that this remedy imposes new obligations on non-lawyers and creates a “risk of prejudice to the integrity of the justice system.” (para. 6)

ONCA Analysis

The ONCA reviewed the legal test to determine the appropriate remedy when privileged information is received by an opposing party.

The test is set out in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189 and more recently in Continental Currency. (para. 10)

The Court in Celanese held that a breach of privilege “creates a serious risk to the integrity of the administration of justice” and that to prevent this, the Courts must act swiftly and decisively. In the Continental Currency, the ONCA cited the Celanese three-part test.

The Test

The moving party must first establish that the opposing party obtained access to relevant privileged materials. (para. 12)

At the second stage of the test, the risk of significant prejudice is presumed. This puts the onus on the appellant to rebut the presumed prejudice flowing from the receipt of privileged information. (para. 13)

The presumption of prejudice can rebutted as set out in MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235 (para. 14), which sets out a non-exhaustive list of factors to consider.

The evidence must be such that a “reasonably informed person would be satisfied that no use of confidential information would occur.” (para. 14)

If the precise nature of the privileged information is unknown or unknowable, “the court should infer that confidential information was imparted, unless the solicitor satisfies the court that no information imparted was confidential.” (para. 15)

The third stage is to determine an appropriate remedy. The respondent has the burden to show special circumstances where a stay is sought. The stay will only be granted where there is prejudice to the right to a fair trial or the integrity of the justice system and there is no alternative remedy to cure the prejudice. (para. 17)

When determining the appropriate remedy, the following factors (not exhaustive) should be reviewed:

1. How the documents came into the possession of the appellants or their counsel.
2. What the appellants and their counsel did upon recognition that the documents were potentially subject to solicitor-client privilege.
3. The extent of review of the privileged material.
4. The contents of the solicitor-client communications and the degree to which they are prejudicial.
5. The stage of the litigation; and
6. The potential effectiveness of a firewall or other precautionary steps to avoid mischief: Celanese, at para. 59. (para. 18)

If the party in receipt of the privileged documents fails to identify what documents were reviewed, the court is unable to determine the extent of the actual review and the degree of resulting prejudice.(para.19)

1. The Appellant Accessed Relevant Privileged Information

The evidence was that Halyk gained access to Labris’ privileged emails, read some, and retained copies of privileged communications with respect to the Partition Application. The documents included Labris’ proposed settlement terms and discissions with his lawyer about how to negotiate with Halyk and to try to resolve the issues and strategic advice about affidavit contents and the focus of cross examination. Halyk gained access to the privileged documentation through an IT consultant that worked for the parties’ business and provided Halyk access when setting up a home office for Halyk. The consultant was unaware of the parties’ dispute. (paras. 27–29)

Upon discovering that Halyk had access to his confidential information, the respondent commenced the application to stay Halyk’s proceeding. (para. 30)

2. The Appellant Accessed Relevant Privileged Information

The ONCA found no error on the application judge’s finding that the first prong of the test was met: Halyk obtained access to privileged material. (paras. 31–32).

3. The Presumption of Prejudice

The ONCA found no error in the application judge’s finding that the presumption of prejudice prong was also met. Halyk’s affidavit did not confirm that he reviewed only the four emails produced, nor did he explain what happened, why or what he did with the documents he printed. The application judge had found that Halyk was not transparent with respect to information on his electronic devices and provided no reasonable explanation as to why he would not allow “the email drain from his Outlook account.” (para. 37) Halyk failed to rebut the presumption of prejudice by disclosing what documents he received, what was done with them and when.

4. Determining the Appropriate Remedy

Halyk did not address the issue of what would be an appropriate remedy, except to say no remedy was warranted. The application judge had noted it would be inappropriate to allow Halyk to “use to his benefit any confidential and prejudicial information he may have accessed” as that would give him an unfair advantage in the litigation and reward him for accessing and reading emails that he would have known were privileged communications not intended for him. As a result of Halyk not discharging his onus to rebut the presumption of prejudice, the application judge held that the court could draw an adverse inference and presume that the respondent suffered and would continue to suffer prejudice. (paras. 44–45)

The ONCA held that the application judge did not err in applying the test in Continental Currency. The ONCA held that the application judge correctly found that to require the respondents to put forward evidence that the privileged documents reviewed contained prejudicial content justifying an extraordinary remedy would require the respondents to disclose further privileged or confidential documents. (para. 48–49)

The ONCA noted that because Halyk did not suggest other remedies, the application judge did not address other remedies raised in the appeal. The ONCA noted that the application judge found that the presumed prejudice to the other side could not be cured as the client, not the lawyer, obtained the privileged information belonging to the other side. (para. 50)

The ONCA reviewed the Bruce Power case where the ONCA upheld a stay of proceedings, saying “the court may presume that if a party in receipt of privileged materials had been able to lead evidence to rebut the presumption it would have done so.” (R. v. Bruce Power Inc. 2009 ONCA 573). In the absence of that evidence, the appellant must bear the consequences. (para. 52)

The ONCA found no error in the application judge’s striking of Halyk’s evidence and their order that the Partition Application proceed before a judge at an undefended hearing. (para. 54)